For those looking at accounting solutions, there is a spectrum of services available for businesses. On the basic end there is; bookkeeping, cash flow statements and tax preparation. A mid-range of service would be budget creation, tax planning and advisory meetings. At the top end is a relatively newer category — Outsourced CFO services.
An outsourced CFO is an accountant or firm who becomes a part-time, or “fractional CFO” for your company. A CFO sits at the intersection of where all the numbers roll into a business (HR, Sales, Inventory, Contracts, and more). Businesses who use outsourced CFO services get the net benefit of having someone at the helm of the financial intersection.
You likely have questions surrounding an outsourced CFO:
- What does this service provide?
- What are the benefits?
- Does my business need a fractional CFO?
- What are some specific examples from a CFO service?
This guide intends to answer these questions with a detailed explanation of the services that should be provided as well as indications you’re ready for a CFO service.
4 Benefits of a CFO for SMBs and Startups
A Chief Financial Officer sounds like a role fit for bigger companies and enterprises. Although nearly every large business does have a CFO, it’s not off-limits to smaller organizations. In fact, smaller companies looking to grow quickly will often benefit more from the advice and capabilities of a sound financial expert.
It’s also important to note, there are few differences between the deliverables of a full-time CFO and that of a fractional CFO service.
So what are the benefits?
- Fraud and Mistake Mitigation: Certain industries come with regulations (e.g. the medical field has HIPAA, HITECH and other legislation). Financials is one of the most regulated aspects of any business. Having someone experienced in all aspects of both monetary instruments and regulations will help businesses avoid unknowingly running into fines and legal issues.
- Financial Experience & Planning: The experience brought by a CFO doesn’t just avoid pitfalls, but better plans a route for better profitability and growth. Good planning avoids paying undue taxes, helps hire appropriately, lower inventory costs and find the best financing options — to name a few.
- Making Sense of the Data: Things like a cash flow statement are great, allowing you to see things, like if you’re spending too much or too little. But all of the data tells a much bigger story and often requires a translator, of sorts, to get that story into language that helps you and the rest of your management team make decisions. CFOs have to be great data translators.
- A Glimpse into the Future: One primary duty of a CFO is forecasting and modeling the outlook for a business. While the future is uncertain to all, an experienced CFO service provides multiple scenarios allowing a business to find different paths forward based on likely outcomes in the coming months and years.
When you put all of this together, you get someone who is able to decipher past data, help you assess the current situation and then create potential futures for your business. Any business can and should utilize the skills of a qualified CFO or outsourced CFO service.
Benefits of an Outsourced CFO Service (as opposed to Full-time)
If you’re an SMB or startup, there’s a ton of work to do. Founders are often handling day-to-day operations like sales, account management or even manufacturing. So, bringing on a full-time CFO is likely something that will take you and the team away from the everyday grind (at least during the onboarding process). This also means that cash flow may be tight, at times, because it’s a full-time executive role.
CFO services, on the other hand, offer clear expectations and quick deliverables that move the needle without requiring nearly as much learning curve (or monetary commitment) as creating a new role. Plus, a service means leveraging a team of experienced professionals, instead putting a heavy workload on a single person.
Here’s an example of the difference:
Full-time CFO process:
- Create a job description
- Put out a job listing
- Interview and hire
- Give access to financial tools and potentially buying new software needed for the role
- Onboard (meetings to set scope of work, learn the situation)
- At least a month (or more) for the new hire to get into the financials and produce meaningful advice and reporting
Result: Likely 90 days or more before you see a meaningful result.
Outsourced CFO process:
- Find quality solutions and check for the right services
- Book a meeting to discuss needs, where your CFO service creates a clear expectation by discovering your specific situation
- Onboarding (the service gets access to all necessary information and data)
- Deliverables begin rolling in within 30-60 days
- Strategy session to discuss findings and to begin using financial reports to improve your business
Result: A process that is far-less time-intensive for you and a quicker turnaround for seeing the benefits.
5 Key Outsourced CFO Services
The big picture benefits sound great to most. But it’s the services, with clear deliverables and expectations, that bring vision into reality. You need to get the most out of the fractional CFO service you use.
Here are 5 metrics any CFO service will deliver to move your business forward.
1. KPI Reporting
So many metrics affect your business. And many of these key performance indicators (KPIs) aren’t directly connected to money. For example, if you’re a startup with investors, headcount is an important indicator of how well you’re using funds.
Other non-financial KPIs include:
- Inventory levels
- Warehouse space
- Sales data (incoming leads, closed won/closed lost)
- Marketing metrics (site traffic)
While these aren’t tracked in dollars and cents, they often do have a direct impact on revenues and budgets. Of course, monetary metrics go hand-in-hand with other KPIs. A few examples here are:
- Cash flow
- Comparisons (budget vs. actual, actuals vs. previous month/quarter/year)
- Debt payoff
- Revenue targets
- Profit margins
Key takeaway: The list of metrics goes on and should be tailored to your business, industry and revenue model. (A CFO service also helps narrow down those metrics to the core components of your business.)
2. Dashboard Compilation
Tracking metrics, as well as their impact on the company, are part of the storytelling done by a quality CFO service. Your financial professional looks at all the data and puts it together in a way that’s easy for the team to understand.
Key takeaway: After the metric-tracking begins, it’s time for your CFO service to compile it into meaningful reporting.
One of the biggest benefits of having someone at the helm of that financial intersection in your business is not having to deep-dive into reports yourself. In fact, a CFO service monitors those things and gives you an executive summary, of sorts.
This can be an actual report or a digital dashboard. Something that you see with graphs, key metrics and analysis (provided by the CFO). Everything you care about and need to run the business (past, present and projected numbers) in a single place.
How do they do it?
- Get all tools on the same page: You likely use an accounting software (i.e. Quickbooks, Netsuite). Then, there’s Gusto for processing payroll. Your bank accounts. Independent software for budgeting or forecasting. A CFO brings these, often one-off, solutions into a single ecosystem.
- Create a meaningful dashboard: Whether it’s via a single dashboarding software or through a quality reporting package, a good CFO service puts it all together based on what you need/want to see.
At the end of the reports and dashboards are decisions. You’re trying to make the wisest choices to stay open, keep people employed and grow the business. This guide mentions many examples of these types of company-changing decisions. And while the ultimate choice is up to the leadership of a company — all experienced voices are typically welcome.
3. Cash Planning
Having negative cash flow is an obvious problem (unless you’re an early-stage startup). But having a positive cash flow that is underutilized is an equally important problem. A growing company that isn’t spending some of the profit to build out infrastructure and staff means not being able to sustain growth in the long term.
Another two-fold cash planning benefit comes in the form of expenses. For instance, many manufacturers negotiate based on quantity. While you’re busy worrying about having “enough” to fulfill demand, a CFO service looks at how much ordering in higher amounts from suppliers lowers cost.
Not too mention, this one decision (buying more parts) has a cascading effect on things like:
- The space to hold it all
- Hiring staff to finish manufacturing it and packaging it
- Using those funds saved by buying in bulk (to do things like pay down debt)
All of these (and countless other examples) are a glimpse into cash planning that both saves your organization money, while spending it more wisely.
Additional note: While it’s tied to, but not directly “cash planning” a CFO service can help evaluate demand and competition to better price products. This helps improve profitability and maximize your conversions, over time.
4. Help with Financing Options
Business financing is a loaded, broad and complex topic. All the more reason to utilize more than basic bookkeeping in your startup or business. Some options are easier than others, like simple business loans. But a CFO gives a glimpse into the long term ramifications of simple loans.
A few example of how CFOs make financing decisions easier:
- Finding and attracting investors: Investors want to believe in a company, the product/service and the leader(s). That said, one of the first places they’ll look is at financial health. A CFO service will compile the current snapshot, recent growth while also painting a bright, logical picture of the future prospects.
- Navigating special programs: Recently, the Paycheck Protection Plan (PPP) was released. Put together quickly, it was confusing for many small businesses and startups. A CFO service thrives on these opportunities to understand and help their clients get the funds available.
- Developing a plan to meet requirements of the financing avenue: Of course, investors want a return on investment. And loans have terms (either to have them forgiven, like the PPP, or repayment). A CFO begins with the financial end in mind. They’ll add key metrics to ensure that investors or debtors get exactly what they’re looking for.
5. Advisory Services
The job of a full-time CFO and an outsourced CFO service are similar here, to offer advice (backed by the data) to help you make these decisions.
Here are a few ways this happens:
- Forecasted scenario planning: Who knows how next year is going to play out. Could be great, terrible or much of the same. A CFO service providing forecasts will be able to show what each of these scenarios will do to your business. From there, you’ll be much better able to pivot depending on what actually comes to pass.
- A few ways forward: Another form of advisory service is to provide a few options. For instance, a SaaS company is planning to hire. The CFO service provides one path that is focused on marketing. Another on sales. Then, one that is focused on hiring developers. Finally, there is a plan that evenly hires for all departments. You (and/or the board) chooses the best option.
- Recommendations based on the situation: Sometimes you want to ask, “What do you think?” And depending on the experience and reputation of the CFO service, this is a great idea. Again, a service is a group of people, often with decades of experience per individual. There’s a lot of value in their genuine advice. Of course, always taking the data into account.
3 Signs Your Business is Ready for a CFO Service
Hopefully, you see the potential both for broad and specific benefits a CFO service offers to organizations. But are you ready for this level of service in your business or startup? It’s a necessary question.
You may be ready if you’re experiencing one, or more of these signs.
- High Revenue, Poor Balances: The top line is big, but you’re unsatisfied with the balances in your accounts. Could be expenses, not charging enough, paying too much, or having too many staff. A CFO takes all the data, compiles it together and shows potential changes that need to be made. Improved cash flow is likely the first order of business of your new outsourced service.
- High Growth, Stressed People and Systems: Business is booming. But over time, complaints have increased. Your support staff is becoming overwhelmed. When you take a closer look, so are the other key members of your team producing and shipping your products/services. Not enough space, it takes too long to go from point A to point B and everything seems tumultuous. There is forensic evidence in the data that points to the bottlenecks and problems. A CFO digs it all out.
- Need for Funding or Financing: Ready and poised for growth and liquidity is the only thing in your way. A cash injection would set the whole plan in motion, but the best financing option isn’t clear. Do you give away part of your company to seek a VC fund? Or take a risk by putting up the business you’ve built up as collateral, if you can get a loan. A CFO service takes your financials and packages them in a way that interests both investors and banks.
Finding the Best Outsourced CFO
If you’re ready, it’s time to put together exactly what you need in a CFO service. Here are 3 categories to include in your search.
- Reputation: There are a growing number of fractional CFO businesses. Find an option with a proven track record of accounting and success offering advisory services to organizations.
- Specialization: If you’re a startup, you want someone who’s familiar with basic business practice as well as the world of tech and marketing jargon. It’s a big learning curve for CFO services only serving small businesses.
- Services: Know which tools you use, the metrics you want to track and the type of advice you’ll look to when making decisions. Keep it in mind when you’re reaching out to find the right solution.
Pasquesi Partners is an accounting firm offering Outsourced CFO Services. Over the course of this guide, you’ve come to know what a CFO can do for your business. We offer all of the tracking and advisory services mentioned and have the experience to perform.